SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
September 30, 1994 1-10534
FIRST OF AMERICA BANK CORPORATION
(Exact name of Registrant as specified in its Charter)
Michigan 38-1971791
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
211 South Rose Street, Kalamazoo, Michigan 49007
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including
area code 616-376-9000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31,
1994
Common Stock, $10 Par Value 60,214,540
FIRST OF AMERICA BANK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Consolidated Balance Sheets, September 30,
1994 (Unaudited) and December 31, 1993
(Audited) . . . . . . . . . . . . . . . 1
Consolidated Statements of Income
(Unaudited) - Three Months and Nine Months
Ended September 30, 1994 and 1993 . . . 2
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended September
30, 1994 and 1993 . . . . . . . . . . . 3
Notes to Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . 18
FIRST OF AMERICA BANK CORPORATION
Consolidated Balance Sheet
(Unaudited)
September 30, December 31,
1994 1993 ($ in thousands)
------------ ------------
ASSETS
Cash and due from banks $ 946,489 903,517
Federal funds sold and other short term investments 69,187 74,909
Securities:
Held to maturity, market value of $3,005,088 at
Sept. 30, 1994 and $1,872,326 at Dec. 31, 1993 3,115,159 1,856,623
Available for sale, amortized cost of $2,882,569 at
Sept. 30, 1994 and $3,212,687 at Dec. 31, 1993 2,828,905 3,261,481
Loans (net of unearned income):
Consumer 5,727,209 5,062,173
Commercial 2,267,683 2,148,663
Commercial real estate 3,250,613 2,902,549
Residential real estate 4,491,819 3,914,914
Loans held for sale, market value of $37,183 at
Sept. 30, 1994 and $368,846 at Dec. 31, 1993 36,960 365,856
------------ ------------
Total loans $15,774,284 14,394,155
Less: Allowance for loan losses 213,596 188,664
------------ ------------
Net loans $15,560,688 14,205,491
Premises and equipment, net 457,400 432,256
Other assets 609,680 496,194
------------ ------------
Total assets $23,587,508 21,230,471
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 2,782,629 2,682,621
Interest bearing 16,819,584 15,561,082
------------ ------------
Total deposits $19,602,213 18,243,703
Securities sold under repurchase agreements 704,767 664,531
Other short term borrowings 829,276 330,047
Short term borrowings 750,423 254,193
Other liabilities 198,589 214,560
------------ ------------
Total liabilities $22,085,268 19,707,034
------------ ------------
SHAREHOLDERS' EQUITY
Common equity $ 1,502,240 1,523,437
------------ ------------
Total liabilities and shareholders' equity $23,587,508 21,230,471
============ ============
See accompanying notes to consolidated financial statements.
FIRST OF AMERICA BANK CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
($ in thousands) 1994 1993 1994 1993
--------- --------- --------- ---------
INTEREST INCOME
Loans and fees on loans 329,175 304,208 930,064 913,740
Investment securities 87,442 71,747 235,461 219,995
Other interest income 526 947 1,722 2,521
--------- --------- --------- ---------
Total interest income 417,143 376,902 1,167,247 1,136,256
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 146,674 141,815 404,762 434,999
Short term borrowings 20,677 4,128 40,328 11,882
Long term debt 9,923 4,695 20,517 14,960
--------- --------- --------- ---------
Total interest expense 177,274 150,638 465,607 461,841
--------- --------- --------- ---------
NET INTEREST INCOME 239,869 226,264 701,640 674,415
Provision for loan losses 21,238 20,526 64,347 64,328
--------- --------- --------- ---------
NET INTEREST INCOME AFTER 218,631 205,738 637,293 610,087
PROVISION FOR LOAN LOSSES --------- --------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts 22,988 21,355 65,588 63,135
Trust and financial services income 20,364 19,193 61,334 57,432
Investment securities transactions, 978 2,662 9,693 12,354
net
Other operating income 26,755 30,314 80,886 81,808
--------- --------- --------- ---------
Total non-interest income 71,085 73,524 217,501 214,729
--------- --------- --------- ---------
NON-INTEREST EXPENSE
Personnel 108,346 100,773 321,841 301,378
Occupancy, net 15,929 13,726 45,769 40,969
Equipment 14,228 12,730 40,991 39,367
Outside data processing 4,649 4,084 13,599 11,509
Amortization of intangibles 4,539 2,242 11,149 6,340
Other operating expense 59,145 59,404 175,745 169,908
--------- --------- --------- ---------
Total non-interest expense 206,836 192,959 609,094 569,471
--------- --------- --------- ---------
INCOME BEFORE TAXES 82,880 86,303 245,700 255,345
Income tax expense 26,475 22,929 77,771 73,751
--------- --------- --------- ---------
NET INCOME 56,405 63,374 167,929 181,594
========= ========= ========= =========
PER COMMON AND COMMON
EQUIVALENT SHARE
Primary 0.96 1.07 2.82 3.08
Fully Diluted 0.96 1.06 2.82 3.04
See accompanying notes to consolidated financial statements.
FIRST OF AMERICA BANK CORPORATION
Statements of Cash Flow
(Unaudited)
Nine Months Ended
September 30,
---------------------
($ in thousands) 1994 1993
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 167,929 181,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,939 28,652
Provision for loan losses 64,347 64,328
Provision for deferred taxes (6,339) (3,943)
Amortization of intangibles 11,149 6,340
(Gain) loss on the sale of securities available for sale (9,693) (12,354)
(Gain) loss on the sale of mortgage loans held for sale (10,036) (20,429)
(Gain) loss on the sale of other assets (208) (582)
Net decrease (increase) in securities held for sale -- 1,182,030
Proceeds from the sales of mortgage loans held for sale 882,934 979,670
Net other decrease (increase) in mortgage loans held for sale (544,002) (1,258,081)
Change in assets and liabilities net of acquisitions:
(Increase)decrease in interest and other
income receivable (23,291) (23,440)
(Increase)decrease in other assets 26,084 172,638
Increase(decrease) in taxes payable (4,877) 14,994
Increase(decrease) in interest and other expense payable 5,069 46,070
Increase(decrease) in other liabilities (16,815) (33,497)
---------- ---------
NET CASH FROM OPERATING ACTIVITIES 576,190 1,323,990
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities (held
to maturity) 352,176 651,380
Purchases of investment securities (held to maturity) (1,630,368) (2,498,764)
Proceeds from the sale of securities available for sale 1,516,122 --
Proceeds from the maturities of securities available for sale 704,565 --
Purchases of securities available for sale (1,696,882) --
Net other (increase) decrease in loans & leases (1,553,065) (175,716)
Premises and equipment purchased (58,012) (56,543)
Proceeds from the sale of premises and equipment 2,741 1,810
(Acquisition)/Sale of affiliates, net of cash acquired 319,316 475,263
---------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES (2,043,407) (1,602,570)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease) in short term deposits 393,424 (64,564)
Net increase(decrease) in time deposits 255,754 (27,258)
Net increase(decrease) in short term borrowings 539,465 363,230
Proceeds from issuance of long term debt 697,838 167,475
Repayments of long term debt (201,608) (150,090)
Proceeds from issuance of common stock 241 706
Payments for purchase and retirement of common stock (103,707) (243)
Dividends paid (71,218) (67,785)
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,510,189 221,471
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 42,972 (57,109)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 903,517 918,960
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 946,489 861,851
========== =========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The accompanying interim financial statements are unaudited. In
the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial statements have been
included and all such adjustments are of a normal recurring
nature. Certain amounts included in the prior period financial
statements have been reclassified to conform with the current
financial statement presentation.
NOTE 2: NON-PERFORMING ASSETS
September 30,
---------------------
(in thousands) 1994 1993
------------- -----------
Non-accrual loans $ 108,938 110,231
Restructured loans 5,885 11,180
Other real estate owned 40,669 50,486
------------- -----------
Total non-performing assets $ 155,492 171,897
============= ===========
NOTE 3: ALLOWANCE FOR LOAN LOSSES
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
(in thousands) 1994 1993 1994 1993 ______________
----------------------------------- ------- ------- ------- -------
Balance, beginning of period $204,465 181,729 188,664 176,793
Provision charged against income 21,238 20,526 64,347 64,328
Recoveries 10,076 9,208 28,381 27,173
Loans charged off (22,209) (24,681) (70,016) (81,765)
Allowance of acquired/(sold) banks 26 (203) 2,220 50
------- ------- ------- -------
Balance, end of period $213,596 186,579 213,596 186,579
======== ======= ======= =======
NOTE 4: BORROWINGS
First of America entered into 364-Day and Three-Year Competitive
Advance and Revolving Credit Facility Agreements on March 25,
1994 with several lenders. Each of the agreements allows First
of America to borrow on a standby revolving credit basis and
uncommitted competitive advance basis up to $150,000,000,
totalling $300,000,000. The proceeds of all such borrowings will
be used to provide working capital and to support other general
corporate purposes.
On July 26, 1994, First of America issued $200 million of 7-3/4%
Subordinated Notes Due July 15, 2004, which are not subject to
redemption prior to maturity and which qualify as Tier II capital
under the Federal Reserve Board's Capital Guidelines.
NOTE 5: COMMON STOCK AND CALCULATION OF EARNINGS PER SHARE
At September 30, 1994 and 1993, there were 58,400,656 and
57,146,201 common shares outstanding, respectively. At the same
dates, there were 100,000,000 authorized shares of $10 par value
common stock. Common and common equivalent earnings per share
amounts were calculated by dividing net income applicable to
common stock by the weighted average number of common shares
outstanding during the respective periods adjusted for
outstanding stock options. The fully diluted earnings per share
calculation for September 30, 1993 was based on the assumption
that all outstanding preferred stock was converted into common
stock and the preferred dividends on these shares were
eliminated.
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
Average Shares Outstanding 1994 1993 1994 1993
--------- --------- --------- ---------
Common and common equivalents 58,847,754 57,454,346 59,586,028 57,412,027
Fully diluted 58,847,754 59,841,196 59,586,028 59,795,773
NOTE 6: MERGERS AND ACQUISITIONS
($ in thousands) Total Financial
Date of Assets Reporting
Acquisition Acquired Value
-------------- -------- --------
LGF Bancorp, Inc. May 1, 1994 $410,000 $61,902
Goldome Federal April 15, 1994 377,000 58,380
Savings Bank (Florida
offices)
Citizens Federal Bank August 26, 1993 498,000 19,902
(Illinois offices)
Kewanee Investing April 1, 1993 28,700 3,982
Company, Inc.
NOTE 7: PENDING ACQUISITIONS
On June 14, 1994, First of America entered into a definitive
agreement to acquire F&C Bancshares, Inc., a $400 million in
assets savings and loan holding company based in Port Charlotte,
Florida. F&C Bancshares' 3,242,209 common shares will be
exchanged tax-free for shares of First of America Common Stock.
The exchange ratio will equal $23.25 divided by the average
closing price of First of America Common Stock during the last 15
trading days immediately prior to, but not including, the third
business day before the completion of the transaction. However,
the exchange ratio will not exceed .6436 and will not be less
than .5519. Based on the current market price of First of
America Common Stock, the transaction has an indicated value of
approximately $70 million. First of America intends to account
for the acquisition as a pooling of interests. The acquisition,
which has been approved by the Federal Reserve, is subject to
approval by the Office of Thrift Supervision and the Justice
Department, and is expected to be completed by the end of 1994.
Concurrently with the execution of the definitive agreement,
First of America and F&C Bancshares executed a Warrant Agreement
pursuant to which F&C Bancshares issued a Warrant to First of
America entitling First of America to purchase up to 648,400
shares of F&C Bancshares common stock upon the occurrence of
certain events set forth in the Warrant Agreement.
Effective on June 28, 1994, First of America entered into a
definitive agreement to acquire Presidential Holding Company, a
$220 million in assets savings and loan holding company based in
Sarasota, Florida. Presidential's 716,188 common shares will be
exchanged tax-free for shares of First of America Common Stock.
The exchange ratio will equal $33.25 divided by the average
closing price of First of America Common Stock during the last 15
trading days immediately prior to, but not including, the third
business day before the completion of the transaction. However,
the exchange ratio will not exceed .9837 and will not be less
than .8735. Based on the current market price of First of
America Common Stock, the transaction has an indicated value of
approximately $24 million. First of America intends to account
for the acquisition as a pooling of interests. The acquisition,
which has been approved by the Federal Reserve, is subject to
approval by the Office of Thrift Supervision and the Justice
Department, and is currently expected to be completed by year-end
1994.
On September 14, 1994, First of America entered into a definitive
agreement to acquire New England Trust Company of Providence,
Rhode Island. New England Trust is a state-chartered trust
company and currently manages approximately $600 million in trust
assets. It is anticipated New England Trust's 684.2 common
shares will be exchanged tax-free for shares of First of America
Common Stock. The exchange ratio will equal $8,769.37 divided by
the average closing price of First of America Common Stock during
the last 15 trading days immediately prior to, but not including,
the third business day before the completion of the transaction.
However, the exchange ratio will not exceed 270.8686 and will not
be less than 228.5178. Based on the current market price of
First of America Common Stock, the transaction has an indicated
value of approximately $6 million. First of America intends to
account for the acquisition as a pooling of interests and expects
to issue approximately 170,000 shares in the transaction. The
acquisition, subject to the approval of New England Trust
shareholders, the Federal Reserve and Rhode Island bank
authorities, is expected to be completed by year-end.
NOTE 8: SUBSEQUENT EVENTS
On October 1, 1994, First of America completed the acquisition of
First Park Ridge Corporation ("First Park Ridge") and its three
commercial bank affiliates. This transaction resulted in the
issuance of 2,199,733 shares of First of America Common Stock.
The transaction was accounted for as a purchase. At September
30, 1994, First Park Ridge had total assets of $330 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Summary:
The following table sets forth the period to period changes in the principal items included
in the consolidated statement of income for the three months and nine months ended September
30, 1994 compared to the corresponding 1993 periods. The bracketed amounts represent
decreases.
Three Months Ended Nine Months Ended
-------------------- --------------------
September 30, September 30,
($ in thousands) 1994 vs 1993 1994 vs 1993
--------- -- --------- --------- -- ---------
Change Percent Change Percent
--------- --------- --------- ---------
Interest and fee income on loans $24,967 8.2% $ 16,324 1.8%
Interest income on investments 15,695 21.9 15,466 7.0
Interest income on federal funds sold and
other short term investments (421) (44.5) (799) (31.7)
--------- --------- --------- ---------
Total interest income $40,241 10.7 30,991 2.7
--------- --------- --------- ---------
Interest expense on deposits 4,859 3.4 (30,237) (7.0)
Interest expense on borrowed funds 21,777 246.8 34,003 126.7
--------- --------- --------- ---------
Total interest expense $26,636 17.7 3,766 0.8
--------- --------- --------- ---------
Net interest income 13,605 6.0 27,225 4.0
Provision for loan losses 712 3.5 19 --
Non-interest income (2,439) (3.3) 2,772 1.3
Non-interest expense 13,877 7.2 39,623 7.0
--------- --------- --------- ---------
Income before tax expense (3,423) (4.0) (9,645) (3.8)
Applicable income tax expense 3,546 15.5 4,020 5.5
--------- --------- --------- ---------
Net income $(6,969) (11.0) (13,665) (7.5)
========= ========= ========= =========
HIGHLIGHTS
Net income for the third quarter was $56.4 million, or $0.96 per
fully diluted share, compared with $63.4 million, or $1.06 per
fully diluted share a year ago. Affecting net income were a
lower net interest margin (4.51 percent versus 4.86 percent) and
lower gains on the sale of loans and securities.
Return on average assets for the quarter was 0.96 percent versus
1.22 percent a year ago. Return on average equity, also lower
for the quarter-to-quarter comparison, was 15.06 percent versus
17.57 percent.
Total assets were $23.6 billion, up 11.9 percent from a year ago.
Total loans increased 11.2 percent from the year ago quarter with
asset quality measures continuing to improve. Total deposits
also increased over a year ago, up 6.2 percent. The year over
year increases were in part due to the acquisition of Goldome
Federal deposits from the Resolution Trust Corporation on April
15, 1994 and the acquisition of LGF Bancorp, Inc., on May 1,
1994. Excluding these two acquisitions, loans and deposits
increased 10.3 percent and 1.0 percent, respectively, from a year
ago.
INCOME ANALYSIS
THIRD QUARTER AND YEAR-TO-DATE COMPARISON
Net interest income (FTE) increased 4.7 percent and 3.3 percent
over the third quarter and year-to-date periods a year ago,
respectively. The increases were the result of a higher level of
average earning assets, up 13.1 percent quarter-to-quarter and
8.7 percent year-to-year. The increased earning assets offset
the lower net interest margin recorded for both periods. The net
interest margin for the third quarter of 1994 was 4.51 percent
versus 4.86 percent a year ago and 4.65 percent reported for the
second quarter of 1994. The acquisitions mentioned previously
added approximately $750 million in higher priced thrift deposits
to the balance sheet during the second quarter. The full quarter
impact of acquisitions plus the added interest expense from the
debt used to fund these acquisitions and the stock repurchase
program lowered the current quarter's margin by 11 basis points
and the year-to-date margin by 7 basis points. Compression in
the margin also resulted from certain deposit products repricing
faster than variable rate loan products during the recent rate
increases. Tables 1 and 2 summarize the yields on earning assets
and rates paid on interest-bearing liabilities and the impact
that changes in rates and volumes have had on net interest income
for the third quarter of 1994 versus the third quarter 1993 and
the second quarter of 1994.
The provision for loan losses was increased 3.5 percent over the
1993 quarter to support the higher level of loans on the balance
sheet. Even with the higher level of loans, First of America's
net charge-offs were lower than both the quarter and year-to-date
totals reported a year ago. Net charge-offs as a percent of
average loans, annualized, were 0.31 percent compared with 0.44
percent reported for the quarter comparison and 0.37 percent
versus 0.53 percent for the year-to-date comparison. Charge-offs
and recoveries by type are detailed in Table 3.
Total non-interest income decreased due to lower levels of gains
on the sale of loans, down $6.3 million and $10.4 million, and
securities, down $1.7 million and $2.7 million, for the quarter
and year-to-date periods. Excluding these combined categories,
fee income increased 8.9 percent and 8.7 percent, respectively.
Trust and financial services revenues for the quarter increased
6.1 percent to $20.4 million versus $19.2 million a year ago.
Year-to-date, trust and financial services income was up 6.8
percent to $61.3 million. The major component, traditional trust
income, increased 5.5 percent and 6.7 percent for the comparative
periods.
Service charges on deposit accounts increased 7.6 percent for the
quarter-to-quarter comparison and were up 3.9 percent for the
year-to-date comparison. Credit card fees increased 6.2 percent
and 8.7 percent, respectively, over the periods. The growth in
credit card fee income was primarily due to continued growth in
the credit card portfolio. At September 30, 1994, credit card
outstandings increased to $1.3 billion, or 25.4 percent higher
than the $1.0 billion reported a year ago, and up 33.5 percent,
annualized, over the second quarter of 1994.
Other fee income, excluding gains on sale of loans and
securities, trust and financial services revenue, service charges
on deposit accounts and credit card fees, increased 18.2 percent
and 21.3 percent for the quarter and year-to-date periods, adding
$13.5 million and $39.9 million to non-interest income,
respectively. Mortgage servicing income, the largest component
of other fee income, increased 46.3 percent and 33.5 percent over
the comparative periods. The mortgage loan servicing portfolio
was $6.8 billion at September 30, 1994 compared with $6.1 billion
at September 30, 1993 and $6.3 billion at December 31, 1993.
Total non-interest expense increased from both the year ago
quarter and year-to-date periods, mainly as a result of
acquisitions. Excluding acquisitions, non-interest expense would
have increased 2.2 percent and 4.4 percent, respectively. As
reported for the third quarter, non-interest expense as a percent
of average assets, annualized, was 3.52 percent compared with
3.71 percent for the September 30, 1993 quarter and 3.69 percent
for the second quarter of 1994.
The burden ratio was 2.31 percent and 2.37 percent for the
quarter and year-to-date periods versus 2.30 percent and 2.34
percent a year ago, respectively. Since non-interest expense
decreased as a percent of average assets, the increase in the
burden ratio was due to slower growth in fee income. The
efficiency ratio over the same periods was 65.63 percent and
65.36 percent versus 62.93 percent and 62.81 percent,
respectively. The third quarter's burden and efficiency ratios
were an improvement over 1994's second quarter ratios which were
2.43 percent and 66.23 percent, respectively.
ASSET QUALITY AND CREDIT RISK PROFILE
First of America's loan portfolio has no significant industry
concentrations of credit, thereby minimizing credit risk
exposure. Also minimizing credit risk are First of America's
conservative lending policies and loan review process. In
addition, First of America's loan customers are largely
consumers, individual homeowners and small to mid-sized
businesses. At September 30, 1994, the loan portfolio was made
up of residential mortgages (28.7 percent), consumer loans (36.3
percent), commercial mortgages (20.6 percent) and commercial
loans (14.4 percent). Investor/developer loans, defined as loans
for non-owner occupied real estate, were $1.6 billion,
approximately 10 percent of total gross loans.
Total non-performing assets, which include non-accrual loans,
renegotiated loans and other real estate owned decreased $16.4
million from a year ago and $27.2 million from year end (see
Table 4). Total non-performing assets as a percent of total
assets was 0.66 percent versus 0.82 percent at September 30,
1993. Additionally, allowance coverage of nonperforming loans
rose to 186 percent and the allowance as a percent of total loans
was 1.35 percent. Tables 3 and 4 provide further detail on
nonperforming and 90 day past due loans as well as charge-offs
and recoveries by loan category.
FUNDING, LIQUIDITY AND INTEREST RATE RISK
First of America continues to monitor appropriate interest rate
risk, provide liquidity and moderate changes in the market value
of the investment securities portfolio through a centralized
funds management division.
Liquidity is measured by a financial institution's ability to
raise funds through deposits, borrowed funds, capital and the
sale of assets. First of America relies primarily upon core
deposits for its liquidity. At September 30, 1994, core deposits
equalled 94.1 percent of total deposits.
First of America's interest rate risk policy is to minimize the
effect on net income resulting from a change in interest rates
through asset/liability management at all levels in the company.
Each banking affiliate completes an interest analysis every month
using an asset/liability model, and a consolidated analysis is
then completed using the affiliates' data. The Asset and
Liability Committees, which exist at each banking affiliate and
at the consolidated level, review the analysis and as necessary,
take appropriate action to minimize changes in the net interest
spread.
Interest rate swap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the
exchange of the underlying financial instrument. The company
becomes a principal in the exchange of interest payments with
other parties and, therefore, is exposed to the loss of future
interest payments should the counterparty default. The company
minimizes this risk by performing normal credit reviews of its
counterparties and collateralizing its exposure when it exceeds a
predetermined limit.
First of America had outstanding interest rate swap agreements at
September 30, 1994, totalling $836 million in notional amounts.
This total included amounts of $125 million as a hedge against
the parent company's 8.50% Subordinated Notes Due February 1,
2004, $30 million against various fixed rate bank notes, $10
million against a short term FHLB advance and the remainder, $671
million, as a hedge against certain certificates of deposit.
First of America had swaps of variable rate instruments for fixed
rate instruments totalling $636.9 million, $177.0 million of
fixed rate instruments for variable rate instruments and $22.1
million representing basis swaps. The year-to-date impact on net
interest income through September 30, 1994 was a positive $1.3
million. First of America had no outstanding interest rate swap
agreements at September 30, 1993. At December 31, 1993, First of
America had interest swap agreements totalling $291.6 million in
notional amounts, of which $125 million was a hedge against long
term debt and the remainder against certain certificates of
deposit.
The difference between rate sensitive assets and liabilities,
including the impact of off-balance sheet interest rate swaps, is
presented in Table 5. The GAP reports' reliability in measuring
the risk to income from a change in interest rates is tested
through the use of simulation models. The most recent simulation
models, using various interest rate shock scenarios, show that
three percent of First of America's annual net income is at risk
if interest rates were to move up or down an immediate one
percent. Management has determined that these simulation models
provide a more accurate measurement of the company's interest
rate risk positions than the GAP tables.
At September 30, 1994, Securities Held to Maturity totalled $3.1
billion, with a market value of $3.0 billion and resulting net
unrealized losses of $110.1 million. This compares with
unrealized gains in the Held to Maturity portfolio at December
31, 1993 of $15.7 million. In accordance with Financial
Accounting Standards Board Statement No. 115 " Accounting for
Certain Investments in Debt and Equity Securities," Securities
Available for Sale are carried at market which totalled $2.8
billion at September 30, 1994 compared with an amortized book
value of $2.9 billion. The $53.7 million unrealized loss in
Available for Sale securities resulted in a corresponding
negative market value adjustment to equity of $44.0 million. At
December 31, 1993, the positive adjustments to securities and
equity from the Securities Available for Sale portfolio were
$48.8 million and $31.5 million, respectively.
CAPITAL STRENGTH
Total shareholders' equity increased 3.6 percent from a year ago
to $1.5 billion at September 30, 1994. Earnings retention and
equity issued in acquisitions offset the stock repurchase program
implemented in the first quarter and the FAS 115 adjustment. As
of September 30, 1994, First of America had repurchased 2,777,300
shares of its common stock. Earlier in 1994, the First of
America Board of Directors authorized repurchase of a maximum of
four million shares of common stock. The fully diluted book
value per share rose to $25.72 from $24.38 reported a year ago.
First of America continues to maintain, both on a consolidated
level and an affiliate basis, capital levels within the
parameters of "well capitalized" as defined by regulatory
guidelines. The consolidated total capital to risk adjusted
assets ratio at September 30, 1994 was 11.81 percent, the tier I
ratio was 8.30 percent and the tier I leverage ratio was 5.67
percent. As consistent with existing regulatory guidance, the
FAS 115 market value adjustment was excluded from the risk based
ratios. On July 26, 1994, the company issued $200 million 7-3/4%
Subordinated Notes Due July 15, 2004, which are not subject to
redemption prior to maturity and which qualify as Tier II
capital. The issuance of this debt, earnings retention and
equity issued in acquisitions combined to offset the prepayment
of other qualifying debt and the stock repurchase program in
increasing the total capital ratio over a year ago.
IN CONCLUSION
Management's long term goals for the company remain a return on
assets of 1.25 percent or higher, an efficiency ratio of 60
percent or lower and a return on equity of between 17 percent and
18 percent. For this year, however, full year results are
expected to be less than the $4.14 earnings per share reported
for full year 1993. Recently announced internal initiatives to
further streamline operations and make delivery of services
more efficient should strengthen the company's performance for
the fourth quarter and 1995.
TABLE 1
CONSOLIDATED YIELD ANALYSIS (a)
1994 1993
------------------------------------ ------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
------- ------- ------- ------- ------- --------
Average Prime Rate (b) 7.5% 6.9 6.0 6.0 6.0 6.0
EARNING ASSETS
Money Market Investments 3.51 2.83 2.95 3.37 2.94 2.88
U.S. Government and agencies securities 5.70 5.61 5.45 5.40 5.68 5.83
State and municipal securities 8.73 8.43 7.56 6.62 8.74 8.72
Other securities 6.16 6.00 6.40 8.29 8.29 8.04
------- ------- ------- ------- ------- ------
Total securities 5.89% 5.79 5.67 5.60 6.05 6.12
------- ------- ------- ------- ------- ------
Consumer loans 9.14 8.98 9.29 9.50 10.11 10.45
Commercial loans 8.32 7.99 7.48 7.66 7.46 7.49
Commercial real estate loans 8.69 8.47 8.24 8.37 8.46 8.54
Residential real estate loans 7.71 7.66 7.79 8.00 8.20 8.45
------- ------- ------- ------- ------- ------
Total loans 8.51% 8.36 8.39 8.53 8.88 9.04
------- ------- ------- ------- ------- ------
Total earning assets 7.77% 7.63 7.66 7.75 7.99 8.18
INTEREST-BEARING LIABILITIES
Time deposits:
CD's - less than 12 months 4.20% 4.29 4.28 4.53 4.63 4.68
CD's - 12 months or more 4.55 4.43 4.56 4.69 4.91 5.23
CD's - $100,000 or more 4.53 3.71 3.30 3.30 3.33 3.39
Other time deposits 5.17 5.07 5.02 5.10 5.32 5.35
Other core deposits:
Savings deposits and NOW 1.49 1.49 1.55 1.76 2.09 2.23
Money market savings and checking 3.06 2.50 2.17 2.28 2.44 2.53
------- ------- ------- ------- ------- -------
Total deposits 3.51% 3.31 3.24 3.41 3.58 3.72
------- ------- ------- ------- ------- -------
Short term borrowings 4.71 4.13 3.38 3.22 3.25 3.14
Long term debt 6.78 6.86 7.02 6.78 6.81 7.37
------- ------- ------- ------- ------- ------
Total borrowed funds 5.23 4.70 4.35 4.14 4.50 4.39
------- ------- ------- ------- ------- ------
Total interest-bearing liabilities 3.72% 3.44 3.31 3.46 3.62 3.76
======= ======= ======= ======= ======= ======
NET INTEREST MARGIN
Interest income to average earning assets 7.77% 7.63 7.66 7.75 7.99 8.18
Interest expense to average earning assets 3.26 2.98 2.85 2.98 3.13 3.26
Net interest margin 4.51 4.65 4.81 4.77 4.86 4.92
(a) Fully taxable equivalent, based on a marginal federal income tax rate of 35%.
(b) The First National Bank of Chicago Corporate Base Rate.
TABLE 2
ANALYSIS OF NET INTEREST INCOME
Third Quarter 1994 Versus Third Quarter 1994 Versus
Third Quarter 1993 Second Quarter 1994
($ in thousands) ---------------------------- ----------------------------
CHANGES IN RATE AND VOLUME Total Change Due To Total Change Due To
INCREASE (DECREASE): Change Volume Rate Change Volume Rate
-------- -------- -------- --------- -------- ----------
Interest Income
Loans (FTE) $25,348 33,584 (8,236) 23,230 15,018 8,212
Taxable securities 18,843 18,544 299 6,668 4,942 1,726
Tax exempt securities (FTE) (6,193) (6,155) (38) (272) (475) 203
Money market investments (421) (610) 189 39 (78) 117
-------- -------- -------- -------- -------- --------
Total Interest Income $37,577 45,363 (7,786) 29,665 19,407 10,258
Interest Expense
Interest-bearing deposits $ 4,859 7,807 (2,948) 13,240 3,446 9,794
Short term borrowings 16,549 10,816 5,733 7,200 380 6,820
Long term borrowings 5,228 5,255 (27) 3,960 3,966 (6)
-------- -------- -------- -------- -------- --------
Total Interest Expense $26,636 23,878 2,758 24,400 7,792 16,608
-------- -------- -------- -------- -------- --------
Change in net interest income (FTE) $10,941 21,485 (10,544) 5,265 11,615 (6,350)
======== ======== ======== ======== ======== ========
NOTE: The change in income attributable to volume is calculated by multiplying the change in volume times the prior
year's rate. The change in income attributable to rate is calculated by multiplying the change in rate times the
prior year's volume. Any variance attributable jointly to volume and rate changes is allocated to volume and rate in
proportion to the relationship of the absolute dollar amount of the change in each. Fully taxable equivalent income
on certain tax exempt loans and securities is calculated using a 35% tax rate.
TABLE 3
SUMMARY OF LOAN LOSS EXPERIENCE
1994 1993
------------------------------- -----------------------------------
($ in thousands) 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30
--------- --------- --------- --------- --------- -------
ALLOWANCE FOR LOAN LOSSES
Balance, at beginning of period $ 204,465 194,745 188,664 186,579 181,729 177,511
Provision charged against income 21,238 22,501 20,608 20,386 20,526 20,029
Allowance of acquired (sold) banks 26 2,194 -- -- (203) 253
Recoveries:
Commercial 1,555 2,265 1,213 1,707 2,762 2,209
Commercial mortgage 403 480 862 744 379 635
Residential mortgage 95 75 75 126 92 105
Consumer installment 5,963 4,803 4,804 4,521 4,235 5,283
Consumer revolving 2,060 2,009 1,719 1,592 1,740 1,938
--------- --------- --------- --------- --------- ------
Total recoveries $ 10,076 9,632 8,673 8,690 9,208 10,170
--------- --------- --------- --------- --------- ------
Charge-offs:
Commercial 3,612 3,449 3,938 3,690 2,933 4,646
Commercial mortgage 1,121 2,619 1,199 2,584 2,620 2,101
Residential mortgage 373 254 245 275 233 287
Consumer installment 7,598 8,831 8,410 9,922 8,534 9,182
Consumer revolving 9,505 9,454 9,408 10,520 10,361 10,018
--------- --------- --------- --------- --------- ------
Total charge-offs $ 22,209 24,607 23,200 26,991 24,681 26,234
--------- --------- --------- --------- --------- ------
Net charge-offs $ 12,133 14,975 14,527 18,301 15,473 16,064
--------- --------- --------- --------- --------- ------
Balance, at end of period $ 213,596 204,465 194,745 188,664 186,579 181,729
========= ========= ========= ========= ========= ======
Average loans outstanding (net of
unearned income) $15,484,765 14,777,048 14,292,647 14,252,372 13,924,461 13,757,416
========= ========= ========= ========= ========= ======
CHARGE-OFFS AND RECOVERIES RATIOS
Net charge-offs to average loans (a) 0.31% 0.41 0.41 0.51 0.44 0.47
Net charge-offs to period end 22.54 29.38 30.25 38.48 32.90 35.45
allowance (a)
Earnings coverage of net charge-offs 8.58 6.69 7.28 6.07 6.90 6.60
Recoveries to total charge-offs 45.35 39.14 37.38 32.20 37.31 38.77
Provision to average loans (a) 0.54 0.61 0.58 0.57 0.58 0.58
Allowance to total period end loans 1.35 1.34 1.35 1.31 1.32 1.31
=========== ========== ========= ======== ========= ======
(a) Annualized
TABLE 4
MEASUREMENT OF ASSET QUALITY
1994 1993
------------------------- --------------------------------
($ in thousands) 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30
------- ------- ------- ------- ------- ----------
NON-PERFORMING ASSETS
Non-accrual loans:
Commercial $ 22,884 24,584 26,486 28,483 22,340 24,356
Commercial mortgage 68,294 75,316 76,911 76,129 70,581 65,086
Residential mortgage 16,709 14,739 13,469 15,727 15,678 17,242
Revolving mortgage 389 333 331 71 99 88
Consumer installment 662 1,131 1,120 776 1,533 804
Consumer revolving -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total non-accrual loans $108,938 116,103 118,317 121,186 110,231 107,576
------- ------- ------- ------- ------- -------
Renegotiated loans:
Commercial 427 469 477 257 302 382
Commercial mortgage 4,335 8,084 8,303 9,272 9,087 11,527
Residential mortgage 1,065 1,074 1,106 1,350 1,791 69
Revolving mortgage -- -- -- -- -- --
Consumer installment 58 59 -- -- -- 59
Consumer revolving -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total renegotiated loans $ 5,885 9,686 9,886 10,879 11,180 12,037
--------- -------- -------- -------- --------- --------
Total non-performing loans $114,823 125,789 128,203 132,065 121,411 119,613
------- ------- ------- ------- ------- -------
Other real estate owned $40,669 42,467 46,417 50,595 50,486 53,950
------- ------- ------- ------- ------- -------
Total non-performing assets $155,492 168,256 174,620 182,660 171,897 173,563
======= ======= ======= ======= ======= =======
Loans past due 90 days or more:
Commercial $ 1,578 915 2,756 2,351 4,688 9,505
Commercial mortgage 2,120 1,680 10,289 4,589 17,895 12,565
Residential mortgage 1,189 2,027 8,955 8,951 7,901 7,192
Revolving mortgage 542 434 521 611 496 416
Consumer installment 4,839 780 1,093 1,683 2,132 1,537
Consumer revolving 5,168 4,927 4,980 5,277 4,477 5,313
------- ------- ------- ------- ------- -------
Total loans past due
90 days or more $15,436 10,763 28,594 23,462 37,589 36,528
======== ======= ======= ======= ======= =======
ASSET QUALITY RATIOS
Non-performing assets as a % of
total assets 0.66% 0.73 0.82 0.86 0.82 0.85
Non-performing assets as a % of
total loans + OREO 0.98 1.10 1.21 1.26 1.21 1.25
Allowance coverage of
non-performing loans 186.02 162.55 151.90 142.86 153.68 151.93
TABLE 5
INTEREST RATE SENSITIVITY
September 30, 1994
0 to 0 to 0 to 0 to 0
30 Days 60 Days 90 Days 180 Days 365 Days
--------- --------- --------- --------- ---------
($ in millions)
ASSETS
Other earning assets $ 69 69 69 69 69
Investment securities (1) 206 299 394 655 1,215
Loans, net of unearned income (2) 4,680 5,218 5,638 6,618 8,495
--------- --------- --------- --------- ---------
Total rate sensitive assets (RSA) $ 4,955 5,586 6,101 7,342 9,779
========= ========= ========= ========= =========
LIABILITIES AND EQUITY
Money market type deposits $ 2,524 2,815 2,886 2,900 2,906
Other core savings and time deposits 885 1,736 2,192 3,287 4,723
Negotiated deposits 492 713 890 1,030 1,090
Borrowings 1,551 1,671 1,783 1,783 1,804
--------- --------- --------- --------- ---------
Total rate sensitive liabilities $ 5,452 6,935 7,751 9,000 10,523
(RSL) (3) ========= ========= ========= ========= =========
Interest rate swaps (3) (601) (624) (631) (557) (522)
========= ========= ========= ========= =========
GAP (RSA - RSL) $ (1,098) (1,973) (2,281) (2,215) (1,266)
RSA divided by RSL 81.86 % 73.90 72.79 76.82 88.54
GAP divided by equity (73.10) (131.36) (151.86) (147.47) (84.29)
RSA divided by total assets 21.01 23.68 25.87 31.13 41.46
RSL divided by total assets 25.66 32.05 35.54 40.52 46.83
GAP divided by total assets (4.66) (8.36) (9.67) (9.39) (5.37)
Assumptions:
(1) Maturities of rate senstiive securities are based on contractual maturities and estimated prepayments.
(2) Maturities of rate sensitive loans are based on contractual maturities, estimated prepayments and
estimated repricing impact.
(3) Maturities of rate sensitive liabilities and interest rate swap amounts are based on contractual
maturities and repricing.
II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement regarding computation of per share
earnings.
The computation of primary and fully diluted
earnings per share is described in Note 5 to
the Consolidated Financial Statements on page
6 of this report.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K
dated July 14, 1994, discussing its pending
acquisitions and reporting the release of its
earnings and financial highlights.
The Registrant filed a Current Report on Form 8-K
dated July 25, 1994, containing the following:
the Underwriting Agreement, dated July 19, 1994,
between Registrant and the Underwriters named
therein, a form of First of America Bank
Corporation's 7-3/4% Subordinated Notes Due July
15, 2004 and the First Supplemental Indenture,
dated as of July 1, 1994, between Registrant and
Continental Bank as Trustee.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, First of America has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
FIRST OF AMERICA BANK CORPORATION
----------------------------------
REGISTRANT
Date: November 9, 1994 /s/ T.W. LAMBERT
Thomas W. Lambert
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
EXHIBIT INDEX
(27) Financial Data Schedule